Question

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5. The Indian government recently introduced a goods and services tax, similar to the one that has been implemented in New Zealand. Newspaper reports suggest that when it comes to petrol, the price per litre of petrol has gone up significantly, suggesting that

the bulk of the tax here is being borne by the consumers rather than petrol retailers.

What does this tell you about the elasticity of petrol in the Indian market?

(a) Demand for petrol is infinitely elastic.

(b) Demand for petrol is highly elastic.

(c) Demand for petrol is unitarily elastic.

(d) Demand for petrol is highly inelastic.

6. Last weckend, Olivia decided to turn down a baby-sitting job that would have paid \(\$ 25\) to go to a movie with a date. She paid \(\$ 15\) for her ticket and chipped in another \(\$ 10\) for the popcom to share with her date. At the end of the evening when she got home, her dad asked about her evening. Olivia was emphatic that it was worth every dollar. This means that if asked to assign a dollar value to the happiness she received from going out on the date, Olivia would say it was worth at least \(\$\)

(a) \(\$ 25\).

(b) \(\$ 50\).

(c) \(\$ 15\).

(d) \(\$ 10\).

Answer 1

14. d) Demand for petrol is highly inelastic.

When demand is inelastic then increase in price does not reduce its quantity by that proportion, so sellers charge more tax from the buyers.

15. b) $ 50

Olivia get satisfaction of $ 50 because she quits baby sitting job which worth $ 25 and also spends $ 25 on arranging date.